Updated over 6 years ago on . Most recent reply
Transform family home to a rental property?
We've outgrown our family home, but instead of just selling it, we wanted to keep it & rent it long term. $200k + equity in California home. Hoping to transfer to LLC? Good idea? Thanks!
Most Popular Reply
Katie is way more qualified to answer with respect to LLC and any tax consequences. I will answer with a different perspective.
Like a lot of RE investors, we started with our family home as our first rental property. It has always been our worst performing asset in terms of cash flow per equity. This is because it was purchased to be a good home for me and my family and not necessarily to be a good investment property. When looking for an investment property you do not have the same emotional ties and can be more analytical. You can purchase in areas that may not be areas that are great today but may improve significantly over the years. The primary criteria for the purchase is the expected return. My family likes a yard. A big yard. Most renters do not want to maintain someone else's yard and are not willing to pay for a larger yard. Some investors that are willing to pay for a larger yard and like the idea of a large yard in theory do not want to maintain the yard. There are many things that could make your home great for you but not appeal to many renters.
So when choosing to keep your ex-home, look at owner tax benefits that will be lost if you do not live in the home for a certain duration and look at if your investment dollars could perform better elsewhere (I think most people who convert their ex-home to a rental could have done better purchasing a different property).
So my ex-home is our worse performing property from an equity perspective. However, I purchased the home for $167K (full retail) and today it is worth ~$630K. It has done fabulous but my other purchases have done better and an investor should want to maximize their return.
Good luck